Investors cared to put money in new companies because they saw that as an opportunity to create a new Toyota or Volkswagen. When Tesla started, people did not believe electric cars would have demand and were concerned whether the technology was mature enough. This is why Tesla almost went bankrupt so many times. Despite that, the American EV maker made EVs desirable regardless of the still ongoing discussions about battery technology. In fact, the want for electric cars sped up investments in cell research and development.
Many automotive executives fear that this trend is artificial, created more by laws, carbon credits, and politicians than from a genuine will from customers. It may have been so in the past. However, that alone cannot explain the phenomenon.
The fact is that car buyers have started experiencing what EVs can offer. They are silent and fast machines that are also inexpensive to run if nothing goes wrong with their battery packs or motors. With the oil shortage and increasing prices for fuels, EV owners also save a lot – particularly if they can charge at home. The perspective that the combustion engine will be eventually forbidden in new vehicles is just another argument for these customers to prefer electric cars.
In such a scenario, new companies had the perfect opportunity to establish themselves. Electric cars are very different machines from those with engines. They demand a different set of engineering skills and another mindset. Companies that did not have investments in combustion engines had a substantial headstart: nothing to get rid of before putting their products for sale.
Legacy automakers were quite the opposite. They had committed investments ages ago to develop new engines and gearboxes. Luca de Meo recently said that a new engine family costs about $2 billion to be developed. Millions of such engines have to be sold for that investment to make sense. The suppliers for those engines have contracts that can cost automakers a fortune if they do not comply. On top of that, good automakers have a responsibility to their suppliers, some of which may vanish without combustion engines.
None of that has been an excuse for companies like Volkswagen or Hyundai to miss electrification as a golden opportunity. They put their money into developing dedicated EV platforms such as the MEB and E-GMP. The Hyundai Ioniq 5 was elected the 2022 World Car of the Year. In 2021, the Volkswagen ID.4 won that accolade. Tesla never got there with any of its four models.
Remember that other massive automakers are also getting more aggressive about electric cars. BMW has a great offer of new vehicles. Mercedes-Benz is also expanding its portfolio, and all other legacy carmakers are taking the perspective of a new industry based on EVs very seriously. Some of them, such as Lexus, already disclosed they would be electric-only in a few years. The exception is Toyota, which decided it will only invest more in EVs when solid-state cells are available – and it will test them in hybrids first.
That shows how legacy automakers stepped up their game to explore what is currently just a fraction of the total world car market, even if an expanding one. If people can buy EVs from brands they already know, why would they risk buying something from a company they have never heard about? New carmakers either already have proven their value, such as Lucid and Rivian, or found deep-pocket investors that trust that they will succeed, such as Lucid and Rivian. All the others need cash.
DeLorean recently announced it would have an IPO (Initial Public Offering) to become a publicly-traded full-line automaker. In its favor, it is not exactly a newcomer. On the contrary: it was established in the 1980s, and its brand remained strong enough 40 years after its bankruptcy for it to try a comeback. On the other hand, many iconic brands are struggling to sell cars nowadays, such as Lancia and Alfa Romeo.
That IPO alone will be a great way to measure how easily new EV makers can fund themselves, either with this process or with the less complicated SPAC (Special-Purpose Acquisition Company) method. All evidence suggests that the opportunity window is now closed or pretty close to shutting down. Now it is the time for those that seized it to show they can compete with those that play this game for decades. Claiming they will save the world will not do the trick.